2025 (4) TMI 592 - AT - Income Tax

ITAT sets aside rejection of permanent registration under sections 12AB and 80G for charitable trust

ITAT Mumbai allowed the appeal and set aside CIT(E)'s order rejecting permanent registration under sections 12AB and 80G. The tribunal held that existence ... Rejecting the applications filed seeking permanent registration u/s. 12AB and Section 80G - as per CIT(E) objects of the assessee leave room for any future potential endeavour that may result in incurring expenditure outside India, which is in violation of sec.11 of the Income tax Act AND activities claimed to have been done are not justified by the expenses incurred by the assessee. HELD THAT:- CIT(E) has to ensure that the charitable trust or institution has complied with the requirement of “any other law for the time being in force”, as are material for the purpose of achieving its objects. Here, it is pertinent to note that the verification by CIT(E) should be restricted to compliance of those laws as are material for the purpose of achieving its objects. As noticed that clauses (a),(c),(d) and (e) would be attracted only when there is application of income as mentioned in those clauses. Hence “actual application of income” is the condition to be satisfied for attracting the above said four clauses. In our view, the provisions of sec.11(1) would not fall under the category of “any other law”, since it is only a computation provision. The provisions of sec.11(1) do not require the charitable trust or institution to comply with any requirements, which are essential to achieve the objects of the trust. Further provisions of sec.11(1) do not state that the application of income derived from property held under trust for activities carried outside India results in violation of any law. Sec.11 only states that the exemption under that section is restricted to income applied for charitable purposes in India, i.e., it does not permit exemption of income applied outside India. Hence income, if any, applied for objects outside India cannot be construed to be violation of “any other law” falling within the meaning of clause (f) of Explanation to sec.12AB(4) of the Act. The foregoing discussions would show that the application of income of a charitable trust or institution outside India for carrying out its objects will not fall under any of the categories of “specified violation” as mentioned in the Explanation to sec.12AB(4) of the Act. Hence, the decision rendered in the case of M.K. Nambyar Saarf Law Charitable Trust [2004 (5) TMI 51 - DELHI HIGH COURT] will apply to the provisions of sec.12AB of the Act also, since the provisions of sec.12AB also do not refer to the activities carried in India or outside India. It can be concluded that existence of any object for carrying out any activity outside India will not enable the CIT(E) to deny registration u/s 12AB of the Act. As observed earlier, such kind of application of income outside India (unless it is permitted by the CBDT) will not be exempted u/s 11 of the Act. Hence, the first reasoning given by Ld CIT(E) is liable to be quashed. Second reasoning given by the assessee is that the expenses incurred by the assessee do not prove the activities carried on by it. In this regard, the Ld A.R submitted that the assessee has filed required documents before Ld CIT(E). He further submitted that the assessee has also furnished additional evidences relating to the activities carried on by the assessee. Accordingly, he prayed that these additional evidences may be admitted and the assessee may be provided with an opportunity to present all the details before Ld CIT(E) to prove the activities carried on by it. We find merit in the prayer of the assessee. We notice that the observations made by Ld CIT(E) with regard to activities is general in nature, i.e., the Ld CIT(E) did not state the deficiencies noticed by him in the documents furnished by the assessee. Further, the assessee has furnished additional evidences in order to satisfy Ld CIT(E) with regard to the genuineness of activities. Accordingly, in the interest of natural justice, we admit the additional evidences furnished by the assessee. Accordingly, we set aside the impugned order passed by Ld CIT(E) rejecting the application filed by the assessee seeking permanent registration u/s 12AB of the Act and recognition u/s 80G and restore all the issues to his file with the direction to process the application of the assessee again afresh in the light of discussions made supra. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the application for permanent registration under Section 12AB of the Income Tax Act, 1961, can be rejected based on the potential application of funds outside India as per the trust's objects.Whether the activities claimed by the assessee are justified by the expenses incurred, and if this can be a ground for denying registration under Section 12AB.Whether the rejection of the application for recognition under Section 80G is justified based on the denial of registration under Section 12AB.ISSUE-WISE DETAILED ANALYSIS1. Rejection of Registration under Section 12ABRelevant Legal Framework and Precedents: Section 12AB of the Income Tax Act outlines the procedure for registration of charitable trusts. The exemption of income is granted to the extent it is applied for charitable purposes in India, as per Section 11. The Tribunal referenced the decision in Sarbat The Bhala Gurmat Mission Charitable Trust v. CIT(E) and M.K. Nambyar SAARC Law Charitable Trust, which clarify that potential application of funds outside India should not be a ground for rejecting registration.Court's Interpretation and Reasoning: The Tribunal found that the mere existence of object clauses that allow for potential application of funds outside India does not justify rejection of registration under Section 12AB. The exemption under Section 11 is only limited to income applied within India, but this does not affect the eligibility for registration.Application of Law to Facts: The Tribunal noted that the objects of the assessee, which include organizing festivals and conferences to bring together Indian classical musicians and scholars globally, do not explicitly state the application of funds outside India. Therefore, the apprehension of the Ld CIT(E) was unfounded.Treatment of Competing Arguments: The Tribunal rejected the Ld CIT(E)'s interpretation that the objects could lead to application of funds outside India, emphasizing that the law only restricts exemption, not registration, based on geographical application.Conclusions: The Tribunal quashed the Ld CIT(E)'s first reasoning for rejection of registration under Section 12AB.2. Justification of Activities by ExpensesRelevant Legal Framework: The genuineness of activities and their alignment with the trust's objectives are crucial for registration under Section 12AB.Court's Interpretation and Reasoning: The Tribunal found that the Ld CIT(E)'s observations were general and lacked specific deficiencies in the documents provided by the assessee. The Tribunal admitted additional evidence submitted by the assessee to demonstrate the genuineness of its activities.Application of Law to Facts: The Tribunal directed the Ld CIT(E) to re-evaluate the application with the additional evidence and provide a clear basis for any deficiencies observed.Conclusions: The Tribunal set aside the Ld CIT(E)'s order on this ground and remanded the matter for fresh consideration.3. Rejection of Recognition under Section 80GRelevant Legal Framework: Recognition under Section 80G is contingent on registration under Section 12AB.Court's Interpretation and Reasoning: Since the Tribunal set aside the rejection of registration under Section 12AB, the basis for denying recognition under Section 80G was also invalidated.Application of Law to Facts: The Tribunal restored the application for recognition under Section 80G for fresh consideration by the Ld CIT(E), contingent on the outcome of the Section 12AB registration process.Conclusions: The Tribunal set aside the order rejecting recognition under Section 80G.SIGNIFICANT HOLDINGSThe Tribunal held that the existence of objects allowing potential application of funds outside India is not a valid ground for denying registration under Section 12AB. The exemption under Section 11 is limited to income applied within India, but this does not affect registration eligibility.The Tribunal emphasized the need for specific deficiencies to be identified when questioning the genuineness of activities in relation to expenses.The Tribunal directed the Ld CIT(E) to re-evaluate both the applications for registration under Section 12AB and recognition under Section 80G, providing the assessee with an opportunity to present additional evidence.The Tribunal's decision underscores the distinction between eligibility for registration and the scope of exemption under the Income Tax Act, emphasizing that potential activities outside India should not preclude registration if the primary activities align with charitable purposes within India.